Author: Patrick McFadden, M2 Global
Covestor model: M2 Global
Anyone who has followed the markets or invested in them since the Japanese earthquake earlier this year must feel a bit wrung out. During the two months from early July to early September, with a mid point of August 8th, the market fell very sharply, then rebounded strongly.
Where we go from here will largely be determined by the macro environment – more precisely, the political solutions or lack of solutions concerning the maturing sovereign debts within the EU and the fiscal response of the Super Committee in the US. The solutions in both case are relatively clear from a non political standpoint, but politicians will be making the decisions.
The result of this highly politicized environment is uncertainty, and as a result, high correlations between equity markets globally and stocks individually. The market looks like "Risk on Roulette". This is unfortunate, as many indicators such as increasing money supply, low costs of capital, and lowered inflation portend good things for US equities if growth does not grind to a stop based on negative self fulfilling expectations.
In a low growth environment, there will be winners. Millions of newly wealthy 35 year olds in China and other BRIC nations will continue buying Apple iPads and Audi A8's. We shared a number of opportunistic stock ideas based on value, growth and yield during the August crash (http://blog.covestor.com/?p=11573). The majority of these ideas remain valid, however our Apple surrogate, OmniVision (Nasdaq: OVTI), a company that supplied almost every camera chip in every Apple device over the last few years, has dropped drastically based on a potential for losing part of Apple's business and the general forecast of lower economic growth.
Our experience with OmniVision leads us to believe such concerns are largely unfounded. OmniVision will sell nearly a billion camera chips in 2011, has a strong balance sheet and virtually no debt.